2017 Half Year Results
- Group production averaged 37,015 Boepd in H1 2017, (42,520 Boepd in H1 2016), reflecting natural declines from existing producing fields, in which there has been no recent drilling ahead of Kraken coming onstream. Following the prolonged Kraken FPSO commissioning, EnQuest’s confirms the updated 2017 full year average production guidance, being within plus or minus 10% of the 37,015 Boepd rate achieved in the first half of the year.
- Revenue of $294.8 million and EBITDA** of $151.0 million, down on the prior period, reflecting the reduced contribution from hedging (down by $127.8m) and the natural production declines.
- H1 2017 unit operating costs of $25/bbl compared to $23/bbl in H1 2016, primarily reflecting lower production volumes. Full year 2017 unit opex is now expected to be around c.$27/bbl, principally due to the Kraken FPSO commissioning related reduction in 2017 production guidance. EnQuest remains committed to delivering substantial unit opex savings when Kraken reaches plateau production levels.
- H1 2017 cash capex of $205.1 million, down on the $261.6 million in H1 2016. Full year 2017 cash capex is expected to be in the $375 million to $400 million range; the top end of the range is reduced from $425 million.
- Net debt at the end of June 2017, was $1,922 million, compared to $1,912 million as reported as at the end of April 2017. Available bank facilities and cash amounted to $213 million as at 30 June 2017.
- Hedging of c.2 million barrels in place for H2 2017, at an average of c.$55/bbl.
- The Magnus/Sullom Voe terminal acquisition remains on course for completion around the end of 2017.
- Non-cash tangible oil and gas asset impairments of $79.6 million, due to a reduction in oil price assumptions.
* Unless otherwise stated, all figures are on a business performance basis and are in US dollars.
|H1 2017||H1 2016|
|Realised oil price $/bbl **||52||62|
|Revenue and other operating income ($m)||294.8||391.3|
|Gross profit ($m)||46.1||117.7|
|Profit before tax & net finance costs ($m)||33.6||149.7|
|EBITDA *** ($m)||151.0||247.5|
|Cash generated from operations ($m)||136.9||182.6|
|Reported basic earnings per share (cents)||2.6||19.5|
|Cash capex ($m)||205.1||261.6|
** Including realised income of $0.3 million (2016: $128.1 million) associated with EnQuest’s oil price hedges. ***EBITDA is calculated on a business performance basis, and is calculated by taking profit/loss from operations before tax and finance income/(costs) and adding back depletion, depreciation, foreign exchange movements and the realised gains/loss on foreign currency derivatives related to capital expenditure. The prior year EBITDA has been restated on a comparable basis by adding back realised losses on foreign currency derivatives related to capital expenditure of $9.4 million.
EnQuest CEO Amjad Bseisu said:
“EnQuest was pleased to bring the Kraken field onstream on 23 June 2017, with substantially reduced capex, assisted by the excellent delivery of the drilling and subsea programmes; we expect the first cargo load of oil to be lifted from the Kraken FPSO in the next few days. Kraken remains on course to achieve plateau production of approximately 50,000 Boepd gross in H1 2018, driving a material increase in EnQuest’s production in 2018 and beyond. EnQuest expects to deliver the targeted reductions in capital expenditure post Kraken start up and to complete the Magnus/SVT acquisition before the year end. Deleveraging the balance sheet remains a key post Kraken start up objective.”
Financial review of H1 2017
- The Group’s blended average realised price per barrel of oil sold was $52 for the six months ended 30 June 2017, compared to $62 per barrel received during the first half of 2016; these respectively included $0.3 million of realised income commodity hedges and other oil derivatives generated in H1 2017 and $128.1 million generated in H1 2016. Excluding this hedging impact, the average realised price per barrel was $52 in H1 2017, above the $41 per barrel received during the first half of 2016, reflecting the recovery in prices. Revenue is predominantly derived from crude oil sales and for the six months ended 30 June 2017 crude oil sales totalled $286.8 million compared with $256.5 million for the comparative period in 2016. The increase in revenue was due to the higher oil price, offset partially by the lower production. Revenue from the sale of condensate and gas was $0.4 million (H1 2016: $0.5 million).
- Business performance cost of sales were $248.6 million for the six months ended 30 June 2017 compared with $273.6 million for the six months ended 30 June 2016. Operating costs decreased by $7.7 million, primarily due to the benefit of a weaker sterling exchange rate, partially offset by operating costs on Scolty/Crathes, which was not producing in the first half of 2016. On a per barrel basis, the Group’s average operating cost per barrel has increased by 9% to $25 per barrel, primarily due to the 13% reduction in production volumes.
- Change in the lifting position and inventory resulted in a $23.7 million credit to cost of sales, reflecting the unwind of the overlift balance that had accrued at 31 December 2016.
- EBITDA for the six months ended 30 June 2017 was $151.0 million compared with $247.5 million during the six months ended 30 June 2016. The lower EBITDA is mainly due to reduced contribution from the Group’s commodity hedge portfolio, which contributed $0.3 million (2016: $128.1 million) and the impact of reduced production, partially offset by the higher average realised prices experienced in the first half of 2017 as compared to the same period in 2016.
- Other expenses of $11.3 million (H1 2016: Income of $37.3 million) primarily comprises net foreign exchange losses, as a result of the revaluation of sterling denominated amounts in the balance sheet following the strengthening of the pound against the dollar. The prior half included foreign exchange gains of $37.3 million, reflecting a weakening of sterling.
- EnQuest’s net debt has increased from $1.80 billion at the end of 2016 to $1.92 billion at 30 June 2017, reflecting the capital expenditure programme, predominantly on Kraken.
- The tax credit for the six months ended 30 June 2017 of $25.0 million (2016: $56.9 million tax credit), excluding exceptional items, is due primarily to an increase in the Ring Fence Expenditure Supplement (‘RFES’) on UK activities.
- Exceptional items resulting in a net loss of $20.0 million before tax have been disclosed separately for the six months ended 30 June 2017 (30 June 2016: loss of $8.5 million). These include tangible oil & gas impairments arising from the decline in the oil price totalling $79.6 million and unrealised gains on commodity and foreign currency derivative contracts of $63.2 million.
- As a result of the continued capital investment, UK corporate tax losses at the end of the period increased to approximately $3.18 billion.
H1 2017 production and development performance and outlook by asset:
|Production on a working interest basis|
Net daily average
Net daily average
Northern North Sea
|Central North Sea|
1 Net production since first oil on 23 June, averaged over the six months to end June 2017
UK North Sea
Northern North Sea production
The ongoing Thistle/Deveron programme to increase the reliability of water injection continues to have a positive impact and plant uptime is also improving. At the Don fields, well performance was above expectations at Don Southwest, with high levels of production efficiency across the Don fields. Production improving chemical treatments have been completed at West Don and are underway at Don Southwest. 2017 water injection issues at Heather/Broom have impacted production year on year, offset by high levels of production efficiency.
Central North Sea Production
The work programme in the Greater Kittiwake Area (‘GKA’) and Scolty/Crathes for 2017 continues to be focused on optimising production across the assets. Good production has been delivered from the GKA fields, with high levels of plant uptime and production efficiency. Production rates on Scolty/Crathes have been constrained due to wax build up in the pipeline. Chemical treatments have been carried out which have allowed production to continue at reduced rates. Further work is ongoing to finalise longer term solutions. Evaluation of the potential from the Eagle discovery is ongoing; Dana Petroleum has confirmed its intention to withdraw from this discovery.
At Alma/Galia, the final phases of the optimisation projects for power, produced water and sea water injection on the EnQuest Producer, have all been completed. As expected at the time of EnQuest’s full year 2016 results announcement in March, 2017 production from Alma/Galia has been lower than in 2016, given wells have been shut in, production outages in Q1 due to storm damage and natural declines. Discussions continue with the ESP supplier, on rectification plans to address the ongoing pump reliability issues.
The Kraken development
First oil from Kraken was delivered on 23 June 2017. To date, the four wells from drill centre 1 (‘DC1’) and two wells out of the three wells from drill centre two (‘DC2’), have produced at initial gross rates above expectations and with stabilised flow rates which confirm the Field Development Plan. The sum of DC1 maximum individually tested well rates have been approximately 24,000 Bopd, with stabilised combined well rates at approximately 15,000 Bopd. One DC2 well has been tested at a rate above 10,000 Bopd, demonstrating excellent reservoir properties and completion efficiency. The proven individual stabilised production rates from the six wells tested so far aggregate to around 30,000 bopd, representing c.60% of the c,50,000,bopd gross plateau production. Injection wells have also surpassed expectations. The hydraulic submersible pumps, subsea production system and turret have all performed as expected. Commissioning of the FPSO vessel topsides equipment continues and, despite good well deliverability, has been constraining production so far. Whilst in Q3 2017, volumes are behind forecast as equipment is commissioned, we expect operational uptime to improve accordingly and to deliver plateau production of approximately 50,000 Bopd gross in H1 2018. Whilst production is constrained, charter rates are reduced in accordance with production levels.
DC3 wells are now due to complete in Q4 2017, ahead of schedule, further facilitating the achievement of plateau performance in H1 2018.
We expect to achieve a further c.$100 million of capex savings on the project as a result of the drilling of DC3 being completed 3 to 4 months earlier than planned and lower market rates for the remaining subsea campaign. Full cycle gross project capex is now estimated to be c.$2.4 billion, 25% down on the original sanctioned cost of $3.2 billion.
Production from Alba benefitted from the A49 well coming back online in March.
EnQuest continues to invest in low cost well work and facility projects to improve production efficiency, including gas compression train refurbishments. In addition, robust inspection and refurbishment campaigns on platform topsides and structures support ongoing safe operations.
Longer term, EnQuest will extend field life through further investment in idle well restoration, facility improvements and upgrades, well workovers, new drilling and secondary recovery projects to increase ultimate recovery. Significant progress is being made in 2017 on technical studies to better define the next phase of these projects.
Focus remains on steady, safe and low cost operations. Tanjong Baram field has produced with an excellent operational uptime in 2017.
For further information please contact:
Tel: +44 (0)20 7925 4900
Amjad Bseisu (Chief Executive)
Jonathan Swinney (Chief Financial Officer)
Michael Waring (Head of Communications & Investor Relations)
Tel: +44 (0)20 7353 4200
Presentation to Analysts and Investors
A presentation to analysts and investors will be held at 09:30 today – London time. The presentation and Q&A will also be accessible via an audio webcast – available from the investor relations section of the EnQuest website at www.enquest.com. A conference call facility will also be available at 09:30 on the following numbers:
Conference call details:
UK: +44 (0) 20 3427 1900
USA: +1646 254 3360
Confirmation Code: EnQuest
Notes to editors
EnQuest is one of the largest UK independent producers in the UK North Sea. EnQuest PLC trades on both the London Stock Exchange and the NASDAQ OMX Stockholm. Its operated assets include Thistle/Deveron, Heather/ Broom, the Dons area, the Greater Kittiwake Area, Scolty/Crathes Alma/Galia and Kraken; EnQuest also has an interest in the non-operated Alba producing oil field. At the end of June 2017, EnQuest had interests in 24 UK production licences and was the operator of 22 of these licences.
EnQuest believes that the UKCS represents a significant hydrocarbon basin, which continues to benefit from an extensive installed infrastructure base and skilled labour. EnQuest believes that its assets offer material organic growth opportunities, driven by exploitation of current infrastructure on the UKCS and the development of low risk near field opportunities.
EnQuest is replicating its model in the UKCS by targeting previously underdeveloped assets in a small number of other maturing regions; complementing its operations and utilising its deep skills in the UK North Sea. In which context, EnQuest has interests in Malaysia where its operated assets include the PM8/Seligi Production Sharing Contract and the Tanjong Baram Risk Services Contract.
Forward looking statements: This announcement may contain certain forward-looking statements with respect to EnQuest’s expectation and plans, strategy, management’s objectives, future performance, production, reserves, costs, revenues and other trend information. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that may occur in the future. There are a number of factors which could cause actual results or developments to differ materially from those expressed or implied by these forward looking statements and forecasts. The statements have been made with reference to forecast price changes, economic conditions and the current regulatory environment. Nothing in this presentation should be construed as a profit forecast. Past share performance cannot be relied on as a guide to future performance.